Investor Votes for Mistry Show Battle Over Tata Empire Is Far From Over

Tata Sons Ltd. has won some battles for control of the Tata Group this week, but the holding company atop India’s largest conglomerate still has to win the war against its ousted chairman Cyrus Mistry.

In October Tata Sons directors said they had lost confidence in Mr. Mistry’s ability to lead the group and voted him out as chairman in a boardroom coup which shocked investors, analysts and Tata employees. Mr. Mistry has refused to step down from his other positions in companies in the sprawling Tata empire that sells everything from steel and software to wristwatches and Jaguars.

Because of the holding structure of the group, Tata Sons has to ask shareholders at each company to vote on whether to keep Mr. Mistry as chairman or as a director. This week shareholders voted to oust him from software and outsourcing company Tata Consultancy Services Ltd.–the group’s largest–as well as Tata Teleservices Limited.

However these battles were an easy win for Tata Sons because it already controls–directly or indirectly–a majority stake in both companies. The holding company can expect more trouble getting its way in the other companies of the group, throwing uncertainty over the future of the businesses.

The voting at TCS on Monday showed some dissent in the ranks that could mean problems for Tata Sons in its campaign to weed out Mr. Mistry and those that support his efforts to revamp the group.

The 73% stake of Tata Sons and related entities in TCS is all it needed to win the vote to oust Mr. Mistry from the board. It had already decided to oust him as chairman of the company which accounts for 16% of the group’s revenues. However a closer look at the votes of the remaining shareholders shows that the Tata Sons’ views on Mr. Mistry are far from universally accepted.

Of the remaining shareholders who voted, 78% of the individual investors and 43% of the institutional investors voted for Mr. Mistry, according to regulatory data. The company didn’t disclose what percent of foreign investors–who own 17% of the company—voted for the rebel chairman.

Analysts say Tata Sons’ position is a lot less secure in the five other listed companies, because it owns less than 35% of the companies. If it fails to get rid of Mr. Mistry it will have to find other options to keep the group from breaking up under different leaders.

“If any of them keeps Mr. Mistry on the board, then Tata Sons will have to decide what to do with the company,” said Shriram Subramanian, founder of shareholder advisory InGovern, who instructed shareholders to vote to keep Mr. Mistry in place. “That would put them in a difficult spot.”

The listed Tata companies have called for shareholder meetings this month to consider Tata Sons’ proposal to remove Mr. Mistry from his place on the board. For the resolutions to pass, it needs the support of at least 51% of shareholder votes.

The shareholders of Tata Motors Ltd. which owns the Jaguar and Land Rover brands and is the second most important company is scheduled to meet on Dec 22. Tata Sons and related entities only own around 32% of it. Another crucial company for the group is Tata Steel, which is currently struggling. Its board is scheduled to meet Dec. 21 to decide on whether to retain Mr. Mistry.

Analysts said Tata Sons may struggle to remove Mr. Mistry in companies like Tata Steel Ltd. and The Indian Hotels Co., which runs the Taj brand of hotels, because investors bought into these firms believing in Mr. Mistry’s vision to sell overseas assets which have hurt the companies’ profits.

The board of Indian Hotels, in which Tata Sons and related entities have a 39% stake, is slated to meet Dec. 20. Its board has previously expressed its “full confidence” in the chairmanship of Mr. Mistry in a regulatory filing since the battle broke out.

Analysts and investors say they are waiting to see who will be in charge before they can make a call on the group and its companies but one thing is certain: however it plays out, the Tata’s pristine reputation has been tarnished.

Shares of the six largest listed Tata Group companies are down an average of 12% on average since the tussle began.

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